A HEDGE fund run by two analysts who spotted the downfall of Wirecard years before its collapse have made a bold prediction that the "AI euphoria" bubble will pop.

Neil Campling and Toby Clothier, founders of Chameleon Global Capital Management, launched their hedge fund last year and have made it their mission to find companies with a "funny smell".

Campling and Clothier worked together at Mirabaud Securities in 2019, when they became suspicious of Wirecard, a German payments processor, and took a large short position on its stock. The outfit was later embroiled in a huge corruption scandal.

The prime suspect for the duo since launching the new hedge fund in May last year is AI, and the massive hype around the technology's much-discussed potential to add trillions in value to the economy.

While the managers acknowledged its benefits, they argued that it often is acting much like "a glorified thesaurus" and the current excitement around it is comparable to the dot-com bubble.

"Is it going to add $40 trillion of economic value over the next ten years, which is what is priced in? No." said Clothier.

"It seems incredibly obvious to us that the popularity of AI has peaked," he added, pointing to declining search trends and "fading" consumer excitement.

However, the market is still "in the grip of AI euphoria", with Nvidia's stock price having risen 23 per cent since the start of the year, so the two were holding off from implementing a full short against it.

Instead, the duo said they planned to create a "short AI" basket of their fund as earnings season approached and firms began to admit that it was tricky to find a way to implement AI to boost their profits.

In another contrarian take, the two have become positive on the UK, comparing it to the recent popularity of the Japanese market from investors after years of neglect.

Having endured "ten years of s**t,"

Campling argued that the "ridiculous valuations" of the UK market left it ripe for M&A potential, but the only thing preventing this was a "lack of participation and lack of interest from institutions" "There's no flow of funds and the domestic funds are being invested elsewhere", added Clothier. But, Clothier was content to sit on a portfolio of strong UK companies that pay "massive dividends" and wait for investors to realise how "incredibly cheap" the UK is in comparison to other countries.

(c) 2024 City A.M., source Newspaper